Bank of America analysts led by Vivek Arya on Monday identified a potential catalyst for Nvidia: a more aggressive program of cash returns to shareholders. The team contends that boosting dividends and buybacks could widen Nvidia's investor base and help close what they view as an unjustified valuation gap with its largest tech peers.
"Increased cash returns could signal sustainability, widen the shareholder base, and help narrow the valuation gap," the analysts wrote.
Despite Nvidia being the largest company in the S&P 500 by market capitalization at roughly $5.08 trillion, BofA points out the chipmaker trades at a substantial discount to its Magnificent Seven peers on a price-to-earnings basis. The firm cites consensus estimates that put Nvidia at 26 times in 2026 and 19 times in 2027, compared with a peer average of 49 times and 41.5 times for the same years.
The analysts note the gap is even larger when measured against free cash flow. BofA estimates Nvidia will generate more than $400 billion in free cash flow across 2026 and 2027 combined, an amount the report says is roughly equivalent to what Apple and Microsoft would produce together over the period. Yet Nvidia is trading at about a 30% lower market-cap-to-FCF multiple than those two companies, according to the analysts.
A focal point of BofA's critique is Nvidia's near-zero dividend. At 0.02%, the dividend yield provides almost no income exposure, the team says, and that has left the stock underrepresented in income-oriented portfolios. The analysts state that NVIDIA (NVDA) is held by only 16% of equity income funds, versus an average ownership of 32% for tech peers within that fund category, which ranges from 9% to 57% ownership depending on the individual peer.
By comparison, the peer group currently yields an average 0.89% from dividends versus NVDA's token 0.02% yield, the report says. BofA suggests Nvidia could consider targeting a dividend yield in the 0.5% to 1% range, more in line with Apple at 0.4% and Microsoft at 0.8%. Doing so would require roughly $26 billion to $51 billion in cash returns, which the analysts estimate corresponds to about 15% to 30% of projected 2026 free cash flow.
Historically, Nvidia has returned a smaller share of free cash flow in recent years than peers. Over the past three years the analysts calculate Nvidia returned 47% of free cash flow through dividends and buybacks, well under the peer group average of roughly 80% and also below Nvidia's own 2013-2022 average of 82%.
The report qualifies that capital returns are not the only factor holding back the stock. Nvidia's weighting in the S&P 500 has risen to around 8.3%, a peak above previous highs for Apple and Microsoft. That larger index weight could constrain additional buying from investors who track the S&P 500. Competitive risks also persist: the analysts highlight rising competition from AMD and from custom chips produced by Broadcom, Google, and Amazon, even as they expect Nvidia to retain more than 70% of AI value share.
Overall, BofA frames a stronger capital-return policy as a lever Nvidia could pull to make the stock more appealing to a broader set of investors, while warning that index weighting and competition remain important offsets to that potential benefit.
Key points
- Increased shareholder cash returns could broaden Nvidia's investor base and help reduce a noted valuation gap with other large tech companies - sectors impacted: technology, financial markets.
- Nvidia's current dividend yield of 0.02% is cited as a barrier to inclusion in income-oriented funds; lifting the yield to 0.5%-1% would require $26 billion-$51 billion, or about 15%-30% of projected 2026 free cash flow - sectors impacted: capital markets, asset management.
- BofA projects Nvidia will generate over $400 billion in free cash flow across 2026-2027 combined, yet the company trades at a lower market-cap-to-FCF multiple than Apple and Microsoft - sectors impacted: corporate finance, equity investors.
Risks and uncertainties
- Nvidia's large S&P 500 weight at approximately 8.3% may limit additional buying by index-tracking investors, reducing the potential impact of any re-rating - markets impacted: passive investment strategies, index funds.
- Competition from AMD and custom silicon from Broadcom, Google, and Amazon could pressure Nvidia's market position despite BofA's forecast that Nvidia will hold more than 70% of AI value share - sectors impacted: semiconductor industry, cloud and tech providers.
- Even with larger cash returns, execution risk remains in deploying buybacks and dividends at a scale that meaningfully alters ownership patterns without introducing other balance sheet or capital allocation concerns - sectors impacted: corporate governance, investor relations.